Selling of equity
Equity financing is the process of raising capital through the sale of shares. Companies raise money because they might have a short-term need to pay bills or they might have a long-term goal and require funds to invest in their growth. By selling shares, they sell ownership in their company in return for cash, like stock financing.Raising money by selling shares of equity is a little more complicated both in theory and in practice than borrowing money using loans. What you’re actually doing when you sell equity is selling bits of ownership in a company. Ownership of the company is split up into shares called stock. Equity financing is thus often accompanied by an offering memorandum or prospectus, which contains extensive information that should help the investor make an informed decision on the merits of the financing.
The memorandum or prospectus will state the company’s activities, information on its officers and directors, how the financing proceeds will be used, the risk factors, and financial statements.